Monday, April 08, 2013

Investors Call For Uniform Sustainability Disclosure

Apr 8: A group of investors announced a Consultation Paper with recommendations for integrating sustainability disclosure requirements into listing rules for U.S. and global stock exchanges. The draft recommendations were developed by nearly a dozen investors who are part of the Ceres-led Investor Network on Climate Risk (INCR).
    BlackRock, British Columbia Investment Management Corporation, and the AFL-CIO Office of Investment are among those who participated on the INCR Listing Standards Drafting Committee. The initiative is part of a growing effort by investors and stock exchanges, including NASDAQ OMX, to make environmental, social and governance (ESG) disclosure a consistent requirement for corporate listings on stock exchanges. While several exchanges have adopted their own sustainability listing requirements and guidance, INCR members and NASDAQ OMX have set out to develop a uniform standard that all stock exchanges can use.

Meyer Frucher, vice chairman at NASDAQ OMX said, "Creating a corporate sustainability reporting standard across all exchanges will encourage a shift in how companies assess the importance of their efforts in environmental, social and governance issues. It is a win-win for both companies and investors, encouraging sound business practices and responsible investing." Investors are being asked to review and comment on the paper's recommendations by May 1, 2013. Once comments are considered and key issues are incorporated, the final document will be submitted to stock exchanges for consideration at the World Federation of Exchanges annual meeting in October.

    Gwen Le Berre, vice president of corporate governance and responsible investment at BlackRock, an international investment manager with $3.8 trillion in assets under management said, "Stock exchanges can play a leadership role in moving ESG disclosure practices forward. We believe that this proposed listing standard strikes a good balance between investors' need for consistent and comparable ESG information, and companies' need for flexibility."

    INCR director and Ceres president Mindy Lubber, whose organization convened the listing standards consultation said, "Investors are increasingly frustrated by the lack of sustainability disclosure across markets, and how inconsistent that data is even within the same industry. We can solve this problem by bringing investors together on standards that make such information comparable and useful. This paper is the result of such discussions." The Consultation Paper calls for the following disclosures by companies as part of a listing standard:

  • Materiality assessment: An assessment in annual financial filings where company management will discuss its approach for determining the company's material ESG issues and the outcomes of such an assessment.
  • Sustainability table of disclosures: Provide a hyperlink in annual financial filings to a Global Reporting Initiative (GRI) Content Index. Such disclosure will let investors know if key ESG information exists, and if so, its exact location and the completeness of the data.
  • Improved corporate ESG disclosure: Companies must provide reporting on a "comply or explain" basis for eight key ESG categories. They can either provide such disclosures or explain why they are not.
    According to the Paper, "The standard global definition of sustainability is derived from the Brundtland Report (released by the UN World Commission on Environment and Development): 'Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.' For the purposes of this paper, 'sustainability reporting' addresses the integration of environmental, social and economic considerations into corporate strategy, business practices and capital markets, as well as the key impacts on social and environmental systems that are caused by corporate activities. In this paper, ESG refers to environmental, social and governance matters related to sustainability. Governance in this context means the oversight and management of environmental and social issues -- not necessarily limited to the parameters of traditional corporate governance analytics. Since the terminology still varies in the marketplace, our use of ESG is meant to encompass sustainability, corporate citizenship, corporate social responsibility and other similar terms."
    The eight key ESG categories would include: Climate change; Diversity; Employee relations; Environmental impact; Government relations; Human rights; Product impact and safety; and Supply chain. Every company would be required to disclose information in the categories of ESG issues, using a comply or explain approach for each category. Examples of reporting topics in each category include for example, but are not limited to:
  • Climate change: greenhouse gas emissions and reduction initiatives, physical risks and opportunities
  • Diversity: employee, board and supplier diversity; training and recruitment programs
  • Employee relations: labor relations and freedom of association, safety, employee turnover and demographics, training, remuneration
  • Environmental impact: water, energy and materials consumption; emissions and waste; toxins; packaging
  • Government relations: political involvement and spending, contracting and revenue payments, tax strategy
  • Human rights: non-discrimination efforts, prevention of child and forced labor, compliance with international human rights norms
  • Product impact and safety: cultural and community impacts, product life cycle assessments, recalls, product integrity and safety
  • Supply chain: size and geographic scope, risks of disruptions (due to e.g. extreme weather events, labor disputes, etc.), impacts on local communities, labor and environmental compliance efforts

    Investor companies participating on the INCR Listing Standards Drafting Committee included: Rockefeller & Co. Sustainability & Impact Investing Group; Boston Common Asset Management; Pax World Management LLC; Rockefeller & Co. Sustainability & Impact Investing Group; Domini Social Investments LLC; BlackRock; F&C Management Ltd.; British Columbia Investment Management Corporation; AFL-CIO Office of Investment; and F&C Management Ltd.

    Access a release from Ceres (click here). Access an overview and link to the Consultation Paper and comments (click here, registration required). [#Sustain, #Climate]

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